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IAS 24

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  • 1. IAS 24: Related Party Disclosureroshankumar.2007@rediffmail.com
  • 2. ObjectiveIAS 24 aims to ensure that an entity’s financial statement contains disclosurenecessary to draw attention to the possibility that it’s financial and profit or loss mayhave been affected by : The existence of related parties Transactions and outstanding balances, including commitments, with such partiesA related party transaction is a transfer of Resources; or Services; or ObligationBetween a reporting entity and a related party, regardless of whether a price ischarged.Related PartyA related party is a person or entity that is related to the entity that is preparing itsfinancial statements (in this Standard referred to as the ‘reporting entity’).a. A person or a close member of that person’s family is related to a reporting entityif that person: i) has control or joint control over the reporting entity; ii) has significant influence over the reporting entity; or iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.b. An entity is related to a reporting entity if any of the following conditions applies: i)The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). iii) Both entities are joint ventures of the same third party. iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If theroshankumar.2007@rediffmail.com
  • 3. reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. vi) The entity is controlled or jointly controlled by a person identified in (a). vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).A person’s close members of the family are those family members who may beexpected to influence, or be influenced by, that person in their dealings with theentity.They may include: the person’s children and spouse or domestic partner children of the person’s spouse or domestic partner dependants of the person or the person’s domestic partnerCompensationEmployee benefits are all forms of consideration paid, payable or provided by theentity, or on behalf of the entity, in exchange for services rendered to the entity. Italso includes such consideration paid on behalf of a parent of the entity in respect ofthe entity. Compensation includes: 1. short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non- monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees 2. post-employment benefits, such as pensions, other retirement benefits, post- employment life insurance and post-employment medical care 3. other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation 4. termination benefits 5. share-based paymentControlControl is the power to govern the financial and operating policies of an entity so asto obtain benefits from its activities.Joint controlJoint control is the contractually agreed sharing of control over an economic activity.Disclosure Requirementsroshankumar.2007@rediffmail.com
  • 4. When an entity is controlled by another party, it needs to disclose the following: Relationships between a parent and its subsidiary shall be disclosed, irrespective of whether there have been transactions between them. The name of the entity’s parent and, if different the ultimate controlling partyIf neither the entity’s parent nor the ultimate controlling party produces consolidatedfinancial statements available for public use, the name of the next most senior parentthat does so shall also be disclosed.The next most senior parent is the first parent in the group above the immediateparent that produces consolidated financial statements available for public use.IAS 24 requires the following specific elements within key managementcompensation to be disclosed: short-term employee benefits (e.g. wages, salaries, annual leave) post-employment benefits (e.g. pensions, post-employment life insurance) other long-term benefits (e.g. long term disability benefits, long service leave) termination benefits (e.g. lump sum payments on termination of employment) share-based payments (e.g. shares and share options)Minimum Disclosure:The following disclosures must be included, as a minimum:1. The amount of the transactions2. The amount of outstanding balances, including commitments, and their terms andconditions, including: - whether they are secured and the nature of the consideration to be providedin settlement, and - details of any guarantees given or received3. Provisions for doubtful debts related to the amount of outstanding balances4. The expense recognised during the period in respect of bad or doubtful debts duefrom related parties.Disclosure CategoriesThe disclosure should be made within the following categories: the parent entities with joint control or significant influence over the entity subsidiaries associates joint ventures in which the entity is a venturerroshankumar.2007@rediffmail.com
  • 5. key management personnel of the entity or its parent other related partiesItems of a similar nature may be disclosed in aggregate, except when separatedisclosure is necessary for an understanding of the effects of related partytransactions on the financial statements of the entity.Exemption:A reporting entity is exempt from the disclosure requirements of minimumdisclosures under IAS 24.18 in relation to related party transactions and outstandingbalances, including commitments, with:a. a government that has control, joint control or significant influence over thereporting entity; andb. another entity that is a related party because the same government has control,joint control or significant influence over both the reporting entity and the other entity.If a reporting entity applies this exemption, it shall disclose the following about thetransactions and related outstanding balances referred to in the above:a. the name of the government and the nature of its relationship with the reportingentity (ie control,joint control or significant influence);b. the following information in sufficient detail to enable users of the entity’s financialstatements to understand the effect of related party transactions on its financialstatements: i) the nature and amount of each individually significant transaction; and ii) for other transactions that are collectively, but not individually, significant, aqualitative or quantitative indication of their extent. Key management personnel of the entity’s subsidiaries and associates are not related parties.roshankumar.2007@rediffmail.com